Incoterms decide who is legally responsible for goods in transit — but responsibility doesn’t pay for a container lost overboard or crushed in a warehouse fire. Cargo insurance is the separate layer that actually covers the financial loss, and it is far too often assumed rather than confirmed.
Why Cargo Insurance Is a Separate Question From Incoterms
An Incoterm like CIF or CIP obligates the seller to purchase insurance to the destination, but under terms like FOB or EXW, insurance is entirely the buyer’s responsibility to arrange — and it’s a step some buyers simply skip, assuming the carrier’s liability covers them. It usually doesn’t, or not fully.
What Carrier Liability Actually Covers
Carriers operate under limited liability regimes set by international conventions, which cap compensation per package or per kilogram — typically far below a shipment’s actual commercial value. Relying on carrier liability alone leaves a significant, often uninsured gap for any high-value cargo.
The Main Types of Marine Cargo Cover
Institute Cargo Clauses (A) offers the broadest “all risks” coverage, subject to standard exclusions. Clauses (B) and (C) offer progressively narrower, named-peril coverage at lower premiums. Choosing between them is a genuine trade-off between premium cost and the breadth of protection against loss or damage in transit.
What Typically Isn’t Covered
Standard cargo policies commonly exclude inherent vice (a product’s own tendency to deteriorate), inadequate packaging, and delay-related losses that aren’t tied to physical loss or damage — each worth checking against your specific cargo type before assuming a policy covers everything.
Who Should Buy the Policy
Whichever party bears risk under the agreed Incoterm at each stage of transit is the one who should hold coverage for that portion of the journey — and for CIF/CIP shipments, the buyer should still confirm the seller’s coverage level meets their actual risk tolerance, since minimum required coverage under these terms is often lower than full replacement value.
Making Sure You’re Actually Covered
We help clients confirm cargo insurance responsibility and coverage adequacy as part of every shipment structured through us. Explore our trade and logistics services or book a discovery call.
Frequently Asked Questions
Does a carrier’s liability cover the full value of lost or damaged cargo?
Usually not. Carriers operate under limited liability regimes that cap compensation per package or per kilogram, typically far below a shipment’s actual commercial value, leaving a real gap without separate cargo insurance.
Who is responsible for arranging cargo insurance?
It depends on the Incoterm used. CIF and CIP obligate the seller to arrange insurance to the destination; under terms like FOB or EXW, insurance is entirely the buyer’s responsibility to arrange separately.
What is commonly excluded from a standard cargo insurance policy?
Inherent vice (a product’s own tendency to deteriorate), inadequate packaging, and delay-related losses not tied to physical loss or damage are commonly excluded and worth checking against your specific cargo type.